Why Is Celgene A Strategic Fit For Bristol-Myers Squibb

A bottle of Bristol-Myers Squibb Co. medication sits on a pharmacy shelf in Provo, Utah, on Wednesday, Aug. 31, 2016.(Photographer: George Frey/Bloomberg)

Bristol-Myers Squibb (NYSE:BMY) recently announced its plan to merge with Celgene in a $74 billion deal. The combined entity will have revenues of over $37 billion, and earnings could be as high as $6 per share in the coming years, according to our estimates. We have created an interactive dashboard ~ What Is The Implied Valuation of the Bristol-Myers Squibb And Celgene Merged Entity ~ that shows our earnings calculation for the combined entity. You can adjust various drivers to arrive at your own estimates. In this note we discuss how Celgene is a strategic fit for Bristol-Myers Squibb.

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Late Stage Drug Pipeline Is The Key For Future Growth

It has been a known fact that Bristol-Myers Squibb’s future earnings growth was largely linked to a single drug – Opdivo, which has been a leader in the immuno-oncology space competing with the likes of Keytruda. In fact, Opdivo’s sales of $4.9 billion for the nine month period ending September 2018, accounted for roughly 30% of the company’s overall revenues, and this contribution is only expected to rise in the coming years. Also, Opdivo itself has seen multiple failures in its pipeline trials in the recent years, and analysts have reduced their peak sales forecast for the drug. The company needed to diversify, and its own phase 3 pipeline isn’t encouraging enough with only a couple of new compounds, TKY2 and NKTR-214.

Looking at Celgene, its blockbuster blood cancer drug Revlimid has been doing well of late with sales estimated to be over $9 billion in 2018, and peak sales of over $15 billion by 2022, when it will lose patent exclusivity. Apart from Revlimid, Pomalyst is another drug with $2 billion in annual sales. More importantly, Celgene’s late stage pipeline is very lucrative with ozanimod in immunology and inflammation, and luspatercept, liso-cel (JCAR017), bb2121, and fedratinib in hematology. The company expects the potential peak sales of its new drugs to be north of $15 billion.

One of the important elements of this deal is access to a promising experimental CAR-T therapy for Bristol-Myers Squibb. Celgene acquired Juno Therapeutics in a $9 billion takeover deal last year. Juno Therapeutics has been working on experimental CAR -T cell therapy, in which a patient’s own immune cells are genetically engineered to make them attack specific proteins on cancer, and infusing them back into the patient. CAR-T cell therapies have higher efficacy over other cancer therapies, and the overall market is estimated to grow at a CAGR of 63% over the next four years, according to a report. CAR-T could potentially become a huge market over the coming years, and Bristol-Myers Squibb will have access to it through bb2121, subject to regulatory approvals.

Led by MIT engineers and Wall Street analysts, Trefis (through its dashboards platform dashboards.trefis.com) helps you understand how a company's products, that you touch, read, or hear about everyday, impact its stock price. Surprisingly, the founders of Trefis discovered...